Silvergate Capital Corp. (SI) announced that the cryptocurrency-friendly Silvergate Bank would “voluntarily liquidate” its assets and cease operations.
The bank was criticised after saying it would have to delay sending in its annual 10-K report because its independent auditors and accounting firm had questions about some of its financial numbers.
On Wednesday, Silvergate Corp. said it had hired Centerview Partners as its financial advisor, Crnth, Swaine & Moore LLP as its legal counsel, and Strategic Risk Associates to help with transition management. According to the corporation, all deposits will be fully returned as part of the liquidation.
Because of recent industry and regulatory developments, Silvergate believes an orderly wind-down of Bank operations and voluntary liquidation of the bank is optimal. The plan for winding down and liquidating the bank includes the total return of all deposits. Silvergate Corp. said that the company is also thinking about settling claims best and keeping the value of its assets, such as its proprietary technology and tax assets.
The state regulator for the company, the California Department of Financial Protection and Innovation in La Jolla, California, said it was keeping an eye on the situation.
DFPI Commissioner Clothilde Hewlett stated, “The Department is evaluating compliance with all financial laws, as well as safety and soundness obligations, and is working closely with relevant Federal counterparts.”
A spokesperson for the White House highlighted the need to look at what Press Secretary Karine Jean-Pierre said earlier this week. She said that the government was keeping an eye on the situation. Jean-Pierre said Vice President Joe Biden would keep trying to get Congress to do something about crypto issues.
Sherrod Brown (D-Ohio), the Senate Banking Committee chairman, said:
“As the impact of FTX’s collapse continues to ripple outward, today we are seeing what can happen when a bank is overreliant on a risky, volatile sector like cryptocurrencies. I’ve been concerned that when banks get involved with crypto, it spreads risk across the financial system and it will be taxpayers and consumers who pay the price. That’s why I am continuing to work with my colleagues in Congress and financial regulators to establish strong safeguards for our financial system from the risks of crypto.”
The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Currency Comptroller all declined to comment.
In an announcement last week, Silvergate Bank disclosed that bank regulators and the Department of Justice were investigating it. Its ability to continue as a “going concern” over the next 12 months might be questioned.
As a result, key crypto clients announced they would suspend their relationship with the bank, and its holding company’s stock price plummeted 58% to a record low of $5.72 – a decline of over $115 in the past year. The company’s stock fell even further after-hours trading after the announcement.
Silvergate obtained loans totalling approximately $4.3 billion from the Federal Home Loan Bank of San Francisco, a federal banking institution that provides this loan to institutions. A seasoned member of the banking industry said that the FDIC should have been concerned months ago about Silvergate’s’ need for these loans.
Since 2013, Silvergate has provided crypto companies with banking services and launched its internal settlement instrument, the Silvergate Exchange Network. (SEN). Friday evening, Silvergate announced that it had suspended SEN.
In its application to go public in November 2018, the company disclosed it had nearly 500 crypto clients. In 2019, the company concluded its initial public offering (IPO) and began trading on the New York Stock Exchange. At the time, the bank had more than 750 crypto clients.
Silvergate was not on the FDIC’s “failed banks” list because it voluntarily liquidated rather than entering FDIC receivership. But it looks like the first big bank failure since October 2020 and possibly the biggest since 2009.